Monday, September 3, 2012

The hurricane is gone, why aren't gasoline prices going lower?

It's amazing how some highly educated people refuse to see the facts in front of them. We continue to get comments that the reason for the recent rise in gasoline prices had to do with the hurricane Isaac threatening US refining facilities in Louisiana.

OK, the hurricane is gone and there has been no material damage. Why aren't gasoline prices beginning to decline?

Gasoline active futures contract (Bloomberg)

The answer is simple. Market participants, in anticipation of US monetary expansion, are bullish energy commodities - irrespective of supply/demand fundamentals (discussed here).

MarketWatch: - Fund managers beefed up their exposure to bets oil will go higher, or long positions, on the week to Aug. 28, data from the Commodity Futures Trading Commission showed late Friday. That has made oil the most overbought since May 1, said in a note to clients Tim Evans, an analyst with Citigroup's Citi Futures Perspective. Money also flowed to gasoline long positions, the most since May as well and "unusually overbought for this late stage of the U.S. driving season," Evans said. Oil futures rallied Friday, up 2% to $96.47 a barrel and notching gains of nearly 10% for the month.

And of course the elevated futures prices are now reflected in prices at the pump, as the damage to the economy in anticipation of QE continues. At $3.80 per gallon the national average price is the highest ever recorded for Labor Day weekend. People will however continue to blame it on the hurricane for some time to come.